▶ 0:17:54The subcommittee on national security, illicit finance, and international financial institutions will come to Without objection, the chairman is authorized to declare recess of the committee at any time. This hearing is titled Modernizing the Bank Secrecy Act for Financial Crime in the 21st Century. Without objection, all members will have five legislative days within which to submit extraneous materials to the chairman for inclusion in the record. I now recognize myself for 4 minutes for an opening statement. I want to welcome our witnesses.
▶ 0:18:21Thank you for participating in our hearing today and for your work in preparation for it. This hearing is the subcommittee's third hearing of the 119th Congress on AML money laundering. Last spring, we examined the tools and techniques to combat fraud, and in the fall, we heard from FinCEN Director Andrea Gacki. Today, we examine the Bank Secrecy Act itself and how to modernize its architecture for today's AML threat.
▶ 0:18:45The Bank Secrecy Act was enacted in 1970 to target the abuse of our financial by organized crime. Over the decades, it has become a large, bloated surveillance demanding endless endless reports without delivering proportional results. Every year, financial institutions file nearly 5 million suspicious activity reports or SARs, and over 21 million currency transaction reports CTRs with FinCEN.
▶ 0:19:14That's an average of 13,000 SARs and 59,000 CTRs every day. The SAR is typically filed when a financial institution has a transaction it involves or aggregates 5,000 or more and a CTR is filed on cash transactions involving more than $10,000.
▶ 0:19:33These report reporting thresholds have never been adjusted for inflation and you know, go back to the 1970s $10,000 in 1970 is more than $80,000 Most CTRs aren't even looked at. According to a December 2024 GAO report, law enforcement agencies accessed only 5.4% of the CTRs filed between 2014 and 2023. So, 10 years of data, only 5.4% even got looked at.
▶ 0:20:04Meanwhile, the Bank Secrecy Act enforcement drives financial institutions to file copious amounts of defensive SARs not only provide no meaningful law enforcement purpose, they increase the noise and make the signal harder to It's not only CTRs and SARs, however, under the Biden administration, the Corporate Transparency Act would have compelled 30 million small businesses to file beneficial ownership information with FinCEN.
▶ 0:20:29I'm thankful the Trump administration rolled this back to focus on foreign ownership and not you know, home ownership associations. So, all this is unused reporting amounts to reflexive desire to grow the BSA haystack rather than to find the money laundering needle. So, I was pleased to see FinCEN release its AML program notice of proposed rulemaking in April.
▶ 0:20:54While it is disappointing that the NPR does not address CTRs and SAR thresholds, it is a welcome shift away from the check the box defensive and it hopes to re-center AML on true risk.
▶ 0:21:09Furthermore, its move to increase FinCEN control over enforcement actions and raise the threshold for enforcement should help financial institutions trust that good faith risk-based compliance and actual actionable intelligence will now be rewarded over a focus on volume and paperwork. Uh as we approach as we focus on risk we must also ensure that the tools like artificial intelligence are fully deployed to counter AI-enabled crimes of in in changes in cybersecurity.
▶ 0:21:40A wait-and-see approach that distrusts rapidly maturing AI systems will tie financial institutions' hands behind their back letting you know bad actors continue to move money at the speed of the internet while law enforcement's stuck in the '70s. If we truly want to stop money laundering by criminals, scammers, and terrorists of this country it's the it's time that we change course. Increased reporting thresholds, AI, and a commitment to prioritizing risk give us the tools to do so.
▶ 0:22:10Put simply, we can continue to pile up reports on lawful activity or we could focus on crime and actionable intelligence. It's time we make the And I recognize the ranking member of the subcommittee, Ms. Beatty, um 4 minutes for an opening statement. Thank you, Mr. Chairman, and thank you to our witnesses for appearing to today's hearing to discuss the Bank Secrecy Act in light of financial crime in the 21st century.
▶ 0:22:36The Bank Secrecy Act or the BSA, which as you've already heard was enacted in 1970 remains to this day one of the strongest tools that we have to stop money laundering, to crack down on shell companies, and to combat terrorist financing, and to protect American consumers from fraud and financial crime. We all know it exists. By helping banks and financial institutions direct detect and report suspicious activity that may be linked to financial crime.
▶ 0:23:05The BSA protects our financial system. It promotes transparency and accountability, and it develops trust in our banking institutions. In the Anti-Money Laundering Act just a few years ago, 2020, Congress came together in an overwhelming, operative word, bipartisan manner to modernize and strengthen the BSA by improving information sharing, shifting towards a risk-based approach, and giving law enforcement sharper
▶ 0:23:36tools to pursue bad actors. Bad actors didn't go away, my friends. My colleagues may say that we don't need this, but we know fraud and everything still exists. However, the current administration has been systematically destructing the very safeguards that help prevent financial crime.
▶ 0:23:57For example, gutting the bipartisan Corporate Transparency Act, suspending the residential real estate rule, suspending the investment advisory rule, and I could go on and on with the list. As we see bad actors use crypto and artificial intelligence to carry out sophisticated scams, this administration is making it easier for drug traffickers, human traffickers to hide their money, exploit consumers,
▶ 0:24:28and game the system while everyday Americans are left more vulnerable. To make matters worse, Republicans in Congress continue to push a dangerous deregulatory agenda that puts our national security and financial system at risk. For example, lowering the currency transaction report and suspicious activity reports are thresholds and creating new national security risks to exploit their stablecoin legislation.
▶ 0:24:57Just last month, the committee Republicans voted to largely repeal the CTA, making it easier for fraudsters and cartels to launder their money through shell companies. Now, they want to hold a hearing about fighting financial crime in the 21st century while actively weakening our anti-money laundering and CFT regulatory framework. So, let's be clear. This hearing really isn't about modernization.
▶ 0:25:27It's about deregulating. You know, if you want to make a change, you have to give me something. You can't just deregulate everything. So, now more than ever, we must strengthen enforcement against financial crime and give Treasury and law enforcement the tools they need to protect families' hard-earned earned savings and preserve the integrity of our financial system. Uh thank you again to our witnesses and I look forward to your testimony. Mr. Chairman, I yield back.
▶ 0:25:56I thank the ranking member. Today, we welcome the testimony of Mr. John Court, the Executive Vice President and General Counsel and Chief Operating Officer at Bank Policy Institute. Mr. Ari Redboard, the Global Head of Policy at TRM Labs. Mr. Nicholas Anthony, a Research Fellow at the Cato Institute. And Ms. Carol House, a Senior Fellow at the Atlantic Thank each of you for taking the time to be here. Each of you will be recognized for 5 minutes to give an oral presentation of your written testimony.
▶ 0:26:27Without objection, your written statements will be made part of the record. Mr. Court, you're now recognized for 5 minutes. Well, thank you, Chairman Davidson and Ranking Member Beatty. I'm John Court. I'm with the Bank Policy Institute. We're a non-partisan research, policy, and advocacy organization whose members are the 40 largest banking organizations that operate in the US.
▶ 0:26:48You have my written testimony, so I I rehearse it, but just instead try to identify uh in my short time sort of the core problems with the current AML regime, explain how current regulators in our view are seeking to address those problems, and then identify two key areas where we think more work needs to be done. Uh the main problems with the current regime, which I think are pretty well documented and and widely agreed upon. First, it's just an outdated, inefficient framework.
▶ 0:27:13The regime is built on a roughly 45-year-old framework that's been repeatedly expanded, but not fundamentally modernized. As a result, the regime is poorly suited to today's illicit finance and technologies. Uh second, it's replete with process-heavy supervisory expectations and examiners who tolerate little to no errors on low-risk matters.
▶ 0:27:36Banking agency examiners focus heavily on detailed processes and documentation rather than real financial crime risk, fostering a check-the-box culture, and forcing banks to waste precious financial crime-fighting resources trying to satisfy examiner demands on immaterial items. Third, it over deputizes banks with severe penalties, creating radically perverse incentives.
▶ 0:28:01Banks are effectively deputized as frontline AML enforcers and face severe penalties for compliance missteps, which encourages defensive over reporting, conservative de-risking rather than smarter, true risk-focused approaches. Fourth, it produces too much volume and not enough value for law enforcement.
▶ 0:28:22Banks generate massive volumes of alerts, SARs, CTRs, and very few of those filings result in law enforcement follow-up, indicating that the regime emphasizes volume over actionable intelligence and usefulness. Fortunately, there's reason for optimism. Congress set the stage for reform by enacting the AMLA in 2020.
▶ 0:28:42Among other things, the legislation would modernize the Bank Secrecy Act framework, create a more effective risk-based innovation-friendly regime with a mandate that banks allocate resources towards higher risk activities and away from lower risk activities. And now regulators, admittedly after some fits and starts and six years later, have begun an effort that we think faithfully implements the core objectives of the AMLA.
▶ 0:29:08They recently issued a proposed AML program rule that reflects a meaningful reorientation of the AML programs towards a more effective risk-based framework that aligns with the AMLA. We're still waiting for the Federal Reserve to approve the proposal, but the other agencies have gotten it out.
▶ 0:29:23Regarding the overly prescriptive one-size-fits-all expectations in the current regime, the proposal corrects for this by moving to a principles-based framework that gives banks discretion to design their own programs and is intended to avoid examiner second-guessing of institution-specific risk judgments. Also, whereas the current system does not sufficiently prioritize higher risk activities, the proposal explicitly directs banks to allocate resources towards higher risk activities and away from lower risk activities.
▶ 0:29:51And finally, the proposal, and this is this is significant and important, contains key components designed to encourage banks to utilize technological innovation to combat financial crime. Nevertheless, we think the proposal could be improved in various ways and we'll be filing a comment letter with the agencies to lay out our views. Mostly, we're going to encourage the incorporation of key concepts from the proposal's preamble into the regulatory text to ensure clear, uniform standards, and consistent application by examiners.
▶ 0:30:21It'll also make the reforms more We'll also recommend that FinCEN play a much more active role in overseeing how the banking agencies conduct their AML exams to ensure those exams are aligned with the national and law enforcement national security and law enforcement priorities of the Once the program rule's done, it's important to turn to two other areas of the BSA regime that we think are in critical need of reform. First, modernize the SAR and CTR reporting rules, which are currently fragmented and outdated.
▶ 0:30:50This can principally be accomplished in two ways. One, revise the reporting thresholds, as the chairman indicated, to keep pace with inflation. And two, incorporate directly into the SAR CTR regulations various FAQ and guidance documents that have been issued over the years. The second is replace the existing banking agency FFIEC BSA AML exam manual, which is voluminous, with a new one that comports with the final program rule. FinCEN should lead that effort, not the banking agencies.
▶ 0:31:20I appreciate the subcommittee inviting me today, and I look forward to answering any questions. Thank you, Mr. Court. Mr. Redboard, you are now recognized for 5 minutes. Chairman Davidson, Ranking Member Beatty, and distinguished members of the My name is Ari Redboard. I appear before you today on behalf of TRM Labs, where we work every day with law enforcement, regulators, financial institutions, and national security agencies to detect, investigate, and disrupt illicit activity.
▶ 0:31:51I spent more than a decade as a federal prosecutor at the Department of Justice, and later as an official at Treasury's Office of Terrorism and Financial confronting terrorist financiers, sanctions evaders, narcotics and transnational criminal enterprises. I have seen how these criminal networks operate, and how they exploit every gap we leave open. We must close those gaps, and we must do so by innovating faster than our adversaries.
▶ 0:32:22The Bank Secrecy Act was built for a world where illicit funds moved over This world no longer exists. The illicit actors, rogue states, and terrorist financiers we are trying to stop today are moving at machine speed. According to TRM's open-source reporting platform Chainabuse, AI-enabled scam activity rose 500% over the last year. Artificial intelligence has changed the economics of financial crime entirely.
▶ 0:32:52North Korea stole more than 2 billion in digital assets last year and has already stolen about 600 million in the first months of 2026. Pig butchering networks stripped tens of billions from American families last year using AI tools to run industrial-scale fraud operations. The solution to the criminal abuse of AI is not to ban or stifle the technology. It is to use it and use it wisely.
▶ 0:33:20We must stay a step ahead of illicit actors by leveraging the same innovations they use for harm for good. At TRM, we have built exactly that. AI-native investigative systems that fuse blockchain intelligence, sanctions data, open-source intelligence, cyber threat data, and other data sets into a unified environment where an investigator can start with a single wallet address, a phone number, or a SAR narrative, and within minutes have a living network
▶ 0:33:50map of connected entities, transactions, and criminal infrastructure that would have taken a team of analysts weeks to build. Beacon network, TRM's real-time information sharing and interdiction platform, puts that capability to work at scale, connecting 100 law enforcement agencies with platforms covering 85% of centralized crypto volume, so that when illicit funds hit an exchange, an alert fires in real
▶ 0:34:20time. The T3 Financial Crime Unit has frozen more than 450 million in illicit assets across 23 jurisdictions since since launching less than two years ago. Not through a SAR and a 60-day review Through real-time intelligence and coordinated action. And let me be clear, this is not a crypto story. Finance itself is moving on chain.
▶ 0:34:48Stablecoins, tokenized securities, and deposits. The same programmable infrastructure that makes real-time interdiction possible today will define how we fight financial crime across the entire financial system tomorrow. A modernized BSA must be built for that The tools work. What we need are the laws to match.
▶ 0:35:11Fund and deploy AI-powered investigative capabilities across every federal agency giving our investigators the same technological edge that criminal networks are already exploiting against Ensure that compliance teams are leveraging cutting-edge AI tools by providing safe harbors and other incentives to leverage game-changing Codify and fund beacon-style real-time intelligence sharing, interdiction, and disruption as core pillars
▶ 0:35:42of US AML Enact a digital asset hold law to give modern financial institutions the same authority traditional banks have held for decades. The legal foundation to freeze illicit funds the moment the intelligence demands it without fear of Formally recognize stablecoin financial intelligence units like T3 that can leverage programmable money infrastructure to freeze, burn, and reissue tokens in real time.
▶ 0:36:12A tool that has no equivalent anywhere in traditional finance. Modernize the SAR framework around network level intelligence rather than transaction level volume. So that so that when reach so that when it reaches law enforcement, it's an actionable insight rather than just And do it all while protecting the privacy of lawful Americans.
▶ 0:36:35The answer to financial crime in the age of AI is smarter tools and better targeted data, not bigger databases that become honey pots for the ransomware groups and state-sponsored hackers that seek to do us harm. We do not have to choose between privacy and security. With the right legal framework and the right technology, we can have both. I welcome your questions.
▶ 0:36:59Thank you, Mr. Reyboard. Now recognize Mr. Anthony for 5 minutes. Chair Davidson, Ranking Member Beatty, and members of the subcommittee, thank you for the opportunity to testify. The Fourth Amendment to the US Constitution says the right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures shall not be violated.
▶ 0:37:24Everyone in this room knows this, but it bears repeating because there are too many problems with the Bank Secrecy Act for me to describe all of them in just 5 minutes. There's inflationary surveillance, transnational repression, a lack of oversight, shifting goal posts, and much more. Frankly, I even take issue with the fact that FBAR is an abbreviation that stands for report on foreign bank and financial But I don't have enough time to cover every issue and will leave many comments to my written testimony.
▶ 0:37:53Instead, I want to leave you with three 59 billion, 28 million, and 275. In a single year, US financial institutions spend an estimated 59 billion dollars complying with the Bank Secrecy Act. This regime forced them to file 28 million reports on their customers. And yet, those reports only tipped off 275 investigations by the IRS.
▶ 0:38:1959 billion dollars in compliance costs, 28 million privacy violations, only 275 It is as clear as thunder on a summer's night that we have a problem. And as the Grateful Dead might say, if the thunder don't get you, the lightning will. of Americans said that the government should need a warrant to access their financial records.
▶ 0:38:44And 79% said banks sharing records without a warrant is Yet financial surveillance is expanding. FinCEN adjusts its penalties for inflation, but never its reporting thresholds. The $10,000 currency transaction report threshold has not been touched since 1945. When the Bank Secrecy Act codified it in $10,000 bought two new Corvettes.
▶ 0:39:13barely buys the engine. No bills are passed, no regulations are open to public comment, yet the inflationary wheel is turning. The Bank Secrecy Act swallows up more transactions every year. Recognizing what has happened, Representatives Beatty, Loudermilk, Hill, Steil, and Williams all pointed out the need for change during a 2022 oversight hearing. Yet, FinCEN has been silent on this issue.
▶ 0:39:39Beyond inflation, FinCEN has dramatically expanded financial surveillance at the border by lowering the $10,000 threshold to just $200. One small business estimated that it would likely go from filing nine reports to 50,000 reports per week. A Texas court said the order defies common sense, likely violates the Fourth Amendment, and is like using a blunderbuss to target a fly. The system's also being weaponized.
▶ 0:40:09In addition to researching financial surveillance, I'm also affected by it. As a co-founder of a small human rights nonprofit, the Activist Atlas, public filing requirements have effectively handed my address to authoritarians on a silver platter. The danger isn't hypothetical.
▶ 0:40:25Authoritarians recognize that the Bank Secrecy Act has created the perfect system to surveil and control their For example, the Russian government branded the Anti-Corruption Foundation as a terrorist group and banks bound by zero-tolerance rules debanked its employees here in the United States. The Nicaraguan government branded human rights defender Félix Maradiaga as a terrorist for organizing peaceful protests against the Ortega regime.
▶ 0:40:53After being debanked, Maradiaga warned that, quote, "Democratic governments are being made unwitting accomplices to dictatorships as such regimes cynically manipulate financial surveillance systems set up to fight crime and terrorism, misusing the Bank Secrecy Act to harass, spy on, and hamper dissidents at home and abroad." The good news is that momentum is Ideas like the Biden administration's proposal to monitor bank accounts with as little as $600,
▶ 0:41:24the global rise of central bank digital currencies, and the recent expansion of surveillance along the border has more Americans than ever realizing that financial privacy in the United States is little more than an Now is the time to reclaim that freedom. The Fourth Amendment does not expire with inflation, it does not pause at the border, and it does not bend to whichever crisis the government invokes this decade.
▶ 0:41:50It's time for Americans to know that the Bank Secrecy Act is really the Bank Surveillance Act, and it's time to fix it. Thank you, and I welcome your Thank you, Mr. Anthony. Ms. House, you are now recognized for 5 minutes. Chairman, ranking member, and distinguished members of the subcommittee, thank you for this hearing and for the invitation to testify. National security today is being fought in the economic domain.
▶ 0:42:15Adversaries seeking to undermine American power are targeting the trust, transparency, and integrity of the financial system that underwrites our alliances, funds our foreign policy, and gives the dollar its meaning. The AML framework is among the most consequential national security tools that we have for defending that terrain. And for ensuring that when adversaries try to exploit it, we can see them, stop them, and hold them accountable. Our adversaries are already exploiting seams in our financial system faster than our frameworks are adapting.
▶ 0:42:43Chinese military-linked procurement routes controlled semiconductors through anonymous US shell companies. Iranian, Russian, and DPRK sanctions evasion is exploiting offshore dollar-denominated stablecoins outside direct US Retirees are losing their life savings in a trillion-dollar shadow war to pig-butchering scams run from compounds in Southeast Asia and Africa. The proceeds from fentanyl that's killing tens of thousands of Americans flow through anonymous shell companies, mirror banking networks, and real estate transactions.
▶ 0:43:11The AML framework exists to address exactly these threats that have been prioritized by this Congress and even in most cases by this This subcommittee is aptly considering how to drive modernization. How to build it smarter. And whether we're mistaking dismantling capability for reform. Getting this balance right matters. This framework implicates real democratic values, privacy, personal liberty, and the genuine burden that compliance places on businesses and families.
▶ 0:43:39Privacy here means calibrated access for those with lawful authority, not the absence of records. Done right, burden reduction and stronger security are not in tension. Better infrastructure and smarter standards improve both simultaneously. But reducing visibility without replacing it with stronger capability is not modernization or efficacy. It becomes strategic The dollar's enduring role in global commerce rests on confidence.
▶ 0:44:03Confidence that the American financial system is governed by rule of law, that it serves legitimate commerce, and that those who abuse it face consequences. When that foundation erodes, when company ownership hides behind anonymous structures, when enforcement arrives years after the fact, when dollar-denominated networks operate beyond accountability frameworks, our adversaries are taking notes.
▶ 0:44:24AML frameworks provide recourse for victims and critical tools for national security and for law enforcement, whether IRS-CI searching BSA data in 94% of their cases, FinCEN publishing strategic trend and network analysis and trend analysis for the benefit of industry, or records relied upon to recover stolen funds. This isn't a compliance statistic, it's load-bearing Now on technology, which is shaping illicit finance both as threat and defender.
▶ 0:44:51The threats are real and Generative AI has industrialized fraud and identity manipulation at near-zero marginal cost. Digital assets and agentic financial systems through real-time automation and questionable points of accountability are creating scaled evasion vectors that current compliance is not yet effectively As intermediation transforms in digital markets, accountability does not and should not disappear. It must redistribute across technology stacks, infrastructure, and governance layers.
▶ 0:45:19The tech opportunity is equally real, and genuine modernization must address both. Machine learning detection is supercharging ability to identify complex financial crime patterns. Public blockchain ledgers can provide investigative visibility that can be difficult to replicate in traditional finance. Authoritative digital identity infrastructure can simultaneously reduce compliance burden and improve fraud prevention and trustworthiness.
▶ 0:45:42Structured machine-readable financial crime data standards could do for illicit finance what we learned in cybersecurity, turning siloed institutional filings into networked collective intelligence in real time. Genuine modernization invests in governance and R&D that captures this opportunity while addressing the threat.
▶ 0:46:01So, let me close with what I feel Congress should prioritize to address identity and trust, restore and drive requirements around beneficial ownership, investment, real estate, and key enabler infrastructure as Congress intended in AMLA.
▶ 0:46:14Build the digital identity infrastructure that makes knowing your customer reliable and less burdensome to To improve what can be seen, finalize the unactioned AMLA SAR sharing pilot, clarify the 314 B sharing framework to cover underlying criminal offenses, and build the structured data standards that transform fragmented institutional filings into collective real-time To enhance what can be actioned, define outcomes-oriented supervision in measurable terms, make enforcement early and calibrated, sector-shaping,
▶ 0:46:45not Resource FinCEN commensurate with its mandate, and modernize the special measures authorities for the digital era. Thank you. I welcome your Uh thank you, Ms. House. We'll now turn to member questions, and I recognize myself for 5 minutes of questions. Uh Mr. Anthony characterizes the Bank Secrecy Act uh geographic targeting orders, the third-party doctrine, really as an unconstitutional surveillance And sitting right next to Mr. N Anthony, Ms.
▶ 0:47:14House seems to acknowledge that it is, in fact, a surveillance system. Uh but it's a good. In fact, uh Ms. House, in your statement, you say uh quote, "As Natalie Lobner has argued in her open banker framework, BSA data is a public good currently trapped in private silos." Could you explain what you mean by that? Absolutely.
▶ 0:47:38So, the the purpose of the Bank Secrecy Act to provide critical transparency and records, which are useful not just for AML, but also in in other use cases, whether it's for revenue and taxes, whether it's for fraud measures Also, to clarify, like my bank records, my financial traction transactions are a public good? The BSA is a public good, yes. And the like information being available so that citizens can have available recourse
▶ 0:48:05Is that what the Constitution says? Um I I think there's a lot of authorities
▶ 0:48:09That's not what it says. All right, so look, I think one of the best statements look, freedom surrendered is rarely reclaimed. And I mean, we're here to do a little reclaiming of freedom today. I think we have a reasonable expectation that our government would protect our country. I mean, I think the Atlantic Council would as uh Secretary State Blinken like to refer to it, defend the quote rules-based order uh that the globalists love so much. And the Bank Secrecy Act could be a useful tool to impose a rules-based order, but it's not perfect.
▶ 0:48:39They're working to modernize it. you know, they're they're trying to complement it with uh central bank digital currency and digital ID, which this house you support. You support digital ID, right? Um I supported digital identity privacy preserving and dignity preserving, yes. Uh I was encouraged to see you mention privacy enhancing tools in your testimony, so that's one nod to civil liberties, and I appreciate that. Mr. Redboard, you talk about privacy enhancing tools, and you talk about the challenge of technology.
▶ 0:49:07I really appreciated uh your your written testimony and the work that you're doing to show, hey, just because this stuff is on a blockchain or other things, it's actually in a lot of ways even easier to follow the money. Uh we do need to modernize our framework. You laid out a series of those things. How can you do that and protect privacy versus turning uh my bank records into a public good? It's the It's the most important and fundamental question, Mr. Chairman.
▶ 0:49:34What we need to do is ensure that lawful actors are able to transact in a secure and private matter. And we can do that with technology. We can ensure that a financial institution has the least amount of information that they need on an individual customer in in to make a decision. A decision that they are not engaging with an illicit actor. And we can use technology to ensure that today. Yeah, thank you. You know, Mr. Court, you're representing banks and the Bank Policy Institute, people that have to go out and execute it.
▶ 0:50:04You know, one of the piece of data, just the total compliance cost, and you know, only 5.4% of this in the past decades even used at all. Mr. Anthony sites, you know, 287 that were created out of it. We we all see public things in my home state of Ohio. We're looking at shell companies that are apparently doing lots of Medicaid business, but uh you know, hundreds of companies with one mailbox and no apparent employees.
▶ 0:50:31How are we missing the signal in real crimes here for all the noise? Yeah, certainly the the framework that we have today deputizes the banks to look at all of their customers, to know their customers, to engage in transaction monitoring, to know their customers' beneficial owners. I mean, the banks clearly have been deputized to collect a tremendous amount of information and to analyze and process process that information almost on a real-time basis. Yeah, thank you. I mean, that seems to be one of the conditions.
▶ 0:51:02If you'll spy on your customers for us, we'll let you run a bank. If you had failed to do that, you can get into a lot of trouble as a bank. You can lose your charter. You can even face challenges for the employees of the bank. Yet, we don't seem to catch some of this, and it's it's not just that we don't catch things that are, you know, cryptocurrency. The vast majority of crime is traditional account-based money laundering. Not just duffel bags of cash, but account-based money laundering or account-based illicit activity.
▶ 0:51:31So, I think it's really timely that we focus on modernizing it. I mean, it And I, you know, Mr. Redbird, I thought you did a nice job of saying, "Look, we're not just talking about a number, whether it's, you know, $10,000 in 1970 that's 82, 83,000 and changing that." But look, at activity-based patterns. You think about credit cards used to get denied charges every now and then. They've gotten much more sophisticated models to analyze this really is you. You are transacting everywhere.
▶ 0:52:00And I look forward to working with you all to modernize this framework in law. My time's expired and I now recognize the ranking member Ms. Beatty of Ohio for 5 minutes. Thank you, Mr. Chairman. Let me start with you, Ms. House and you, Mr. Redboy. My My first question is on suspicious activity reports or SAR as they're more called.
▶ 0:52:26SARs compliance as you know is one of the top concerns that I hear from banks and credit unions in my home state, same state as our chair. And it's one of the key areas that we targeted in the Anti-Money Laundering Act of 2020. Instead of simply changing the thresholds, we aimed to streamline the SARs form to reduce the burden on financial institutions without compromising law enforcement's needs.
▶ 0:52:53Unfortunately, there's been no resolution to this issue since we passed the Anti-Money Laundering Act into law. So, should FinCEN take the mandated steps as required by the Anti-Money Laundering Act to enhance the effectiveness of SAR and CTRs? What do you think? Yes, absolutely, Congresswoman. I think these are critical tools that based on the rule of law and supporting other authorities in the Constitution like regulating interstate commerce.
▶ 0:53:22I think that it's necessary. It helps to build towards that that public good to help law enforcement and national security authorities detect these adversaries who are exploiting our financial sector in order to hurt Americans. So, yes, FinCEN should finish those those measures and should engage with Congress and with the public on their completion and work to modernize them like you said, in a way that streamlines and helps to automate and use structured data. There's a huge amount of opportunity to leverage data and technology in a way to modernize Mr. Ryan House. Mr.
▶ 0:53:52Chairman, I strongly agree with Mrs. Miss House's last point about technology. I was a prosecutor for many years. I was on a SAR task force out of the US Attorney's Office in DC, and it was like a needle in a haystack. We'd be calling through hundreds, thousands of of SARs in order to to to find the signal. And the reality is today that we have technology that could that we can run over these data sets in order to find that signal. And we should be leveraging that entirely.
▶ 0:54:19I think it's that combined with taking the burden off, ensuring that, you know, we talk about a about a risk-based approach a lot. I'm not sure we actually have one in practice. And that is, what are the real risks that your financial institution is is dealing with? And let's make sure we're filing SARs on only those. Thank you. And let the record show that the other two witnesses were also nodding, and I appreciate that. Let me do a follow-up.
▶ 0:54:42If so, Miss House, what are some of the options to streamline the process while maintaining the utility to law enforcement?
▶ 0:54:51Um, a few options, that's great. So, besides I think you can leverage some of this technology to do things like, let's imagine structuring SARs. This was a great opportunity where banks and others have expressed concerns there. FinCEN could publish an attachment format with the the column headers, and basically the different data fields that they want to help automate. Banks being able to export that data and not having to to spend time generating narratives.
▶ 0:55:14I think that there are some of those opportunities for allowing for a greater automation, ingesting of the raw data files and the authoritative sources in a way that can be used better by AI and other capabilities, ingested by law enforcement as well as by FinCEN. I think that requiring FinCEN to also enrich data like SAR filing when making that available to law enforcement will benefit them.
▶ 0:55:35So, I think data file data file structures and standards, modernizing the form to reflect um, you know, more harmonization and less overlap between different fields would be really valuable. Let me kind of follow up with that, Ms. House. Fraud prevention is top of the mind for many of us on this committee given the huge financial losses our constituents are suffering. In some [snorts] cases, uh, we get calls where people their entire life has been wiped away. And thank you again for uh, witnesses nodding on that.
▶ 0:56:05Uh, and since there is such a strong bipartisan support on this issue, can you discuss how our AML and CFT framework is related to our efforts to disrupt fraud operations?
▶ 0:56:19any tools or infrastructure we can
▶ 0:56:21Absolutely. Fraud is a predicate offense to money laundering. Um, so ultimately the the requirement for there being records um, and the and reporting allows for there to be both um, the mechanism for financial institutions to try to follow those funds flows and be able to disrupt them potentially on their own using information sharing authorities like 314b which this Congress has given the financial sector.
▶ 0:56:42Um, but then also it allows for um, investigators like law enforcement to be able to come in after the fact to try to do uh, the the tracing of these funds flows to try to identify the accountable actors. So there's opportunities for that to try to recover and freeze those funds and and restore them back to make victims whole. The opportunity to identify these illicit networks and those strategic enablers and centers of gravity for us to bring other authorities like designations um, to work on international disruption like we've done coordinated law enforcement takedowns of this infrastructure.
▶ 0:57:13It's critical to address the fraud problem. Uh, thank you. I'll circle back later with the others, but my time is up for now. Uh, thank you, Ms. Beatty. I now recognize the chairman of our task force on monetary policy, Mr. Lucas of Oklahoma, for 5 minutes. Thank you, Mr. Chairman, and thank you to our witnesses for testifying today. Mr. Anthony, let's begin with the good news. What progress does last month's notice of proposed rulemaking on the status quo of ALM program?
▶ 0:57:42Well, I'm afraid to say it's a mixed bag. It's good because it's talking about starting modernization, starting to change the way that we go about this process. But, one of the big problems is partly what Representative Beatty had mentioned or I apologize Ranking Member had mentioned where FinCEN really hasn't upheld the Anti-Money Laundering Act of 2020 and one of the core things of that that Congress asked it to do was in collaboration with other agencies provide data on
▶ 0:58:12how this information is used. It provides some reports, but not nearly to the letter of the law and that information needs to be the foundation of all modernization processes. We need to be able to see where it works, where it doesn't, and where a gray area might be before we build. So, good that they're starting the process of modernization and giving banks the ability to change how they do business, but still there's a lot of work to be done. Turning to you, Mr.
▶ 0:58:41Court, certainly the proposed rule is an What would it mean practically for banks and consumers if FinCEN built on this program and modernized the CTR and the SAR thresholds? Yeah, modernizing the thresholds would certainly help, right? I mean, currently we have thresholds that are way too low. They're creating just too much volume, too much noise. Um I I would say further though that that is probably on the margins, honestly.
▶ 0:59:08What what what the proposed rule is trying to do and what the AMLA instructed the government to the federal government to do 6 years ago was to try to get the boot of the federal bank examiner off the neck of the people inside the banks who are trying to fight financial crime. And unfortunately, you've had 6 years where nothing it done. Uh so, we've been living with the status quo. This proposal gives us the opportunity, hopefully for the first time, to to to redirect the regulation um that instructs the examiners.
▶ 0:59:37My my fear though, of course, is that the examiners uh will will entrench and continue uh a pace the the what what they're used to doing. And and I don't mean to ascribe the bad intentions on anyone. It's just the way the system is set up. It's the way the incentives are are set up, which is why we encourage a much more active role for FinCEN and the Treasury Department to have oversight about what the bank examiners are doing. GAO has recommended that FinCEN take steps to reduce the number of unused CTRs.
▶ 1:00:08Mr. Redford, from your experience, how would Treasury and law enforcement agencies benefit from reduced collection of low-risk information? I think it would cer- Excuse [clears throat] me, I think it would certainly help uh find the signal in the noise. We'd have fewer SARs, but they would be more targeted, more focused. I think with technology, we can do this much, much better also. I mean, just think about your standard SAR narrative. It involves one case, one transaction. It gives you, you know, the two, the from, you know, a little bit of of data around that.
▶ 1:00:38What we can do today is build out networks with SARs. We could really focus on where the true risks are to the financial system and to that financial institution. So so so my my my piece would be we we should certainly file fewer CTRs and SARs. Um the threshold certainly helps, but we could do so much more with technology today build out criminal networks. Mr. Court, can you expand on your testimony? How can banks benefit from emerging technological tools used to identify suspicious activity?
▶ 1:01:05And how can FinCEN recognize such benefits in their compliance regime? So obviously, the incentive inside the bank is to have the most effective financial crime-fighting apparatus as possible at the least cost. Uh and one way to do that is to leverage technology and innovation. Um the proposed rule really encourages banks to do that and implies that they wouldn't they won't be second guessed.
▶ 1:01:30Unfortunately, what we've been living with including for the last 6 years is banks trying to use technology and innovation but examiners demanding that the banks like run pop processes in parallel which just upends the entire incentive structure for moving to the to the innovative technologies. So we're we're hopeful under this proposal that that will be eliminated. Absolutely. Thank you, Mr. Court. With that, Mr. Chairman, I yield back the balance of my time. Thanks, Mr. Lucas. I now recognize the ranking member of our task force on monetary policy, Mr. Vargas of California, for 5 minutes.
▶ 1:02:00Thank you very much, Chairman and ranking member and also all the witnesses here today. I appreciate it. Um couple of things. I guess the first thing that came to mind from your testimony was the issue of surveillance, the rights that we have under the Fourth Amendment.
▶ 1:02:17Um and and the reason I'm I want to comment on it like self is, you know, when I I've been here for a while now and I always hear my colleagues on the other side talk about deficit and and how we shouldn't increase the deficit and how we shouldn't increase the debt and of course immediately when they're in power they increase it by an incredible amount even the ones that say, "I'd never vote for it, never vote for it." And then they get the call from the supreme leader and they immediately vote for it. You know, and all of a sudden we're you know, the debt gets tagged with another $5 trillion with their big ugly bill.
▶ 1:02:47Well, the same thing sort of with this surveillance I mean I I hear wonderful things, you know, and I and I actually agree that, you know, the Fourth Amendment should protect us the the way it should protect us again to be secure in our person. And that's why you can't have these unreasonable searches and seizures without warrant, without probable cause. It makes sense to me. And then we have the acting director of ICE that comes and says the opposite.
▶ 1:03:13You know, no, you can in fact go into people's homes without a warrant, without probable cause, arrest people to find out what's going on. And I don't hear a peep out of my friends on the other side, even though they're defending this notion that you have to have warrants, your privacy, all of this. Well, hell, it's nice when they talk about it, but they don't do anything about it. We complain left and right, and we don't hear a peep out of them.
▶ 1:03:43And it's their administration, it's the supreme leader again, that's doing this. So, anyway, I had to bring that up because again, I I do think that um the government is surveilling too much. I I believe in that. I do. And I And I think we have to again respect the rights of people, and I don't think we're doing it right now. So, I agree with some of the things you said, Mr. Anthony in particular, and I'm glad you mentioned the border because we have a surveillance like you won't believe.
▶ 1:04:10So, with all that being said, um I do want to ask Ms. Hausman, one of the things that does seem to me correct, or or or at least a problem, is that yeah, in 1972, when you have this act that comes forward, they set a limit at $10,000. If you do put it in an inflation calculator, and if you look at the cumulative inflation to today, it would be like $79,600 and some thousand dollars. I mean, you were wrong, someone was wrong though about two Corvettes and an engine.
▶ 1:04:39You couldn't buy a Corvette engine today for $10,000. I'm a car guy, I could tell you. You cannot buy a Corvette engine for $10,000. I'm sorry, sir. I I said in my testimony, you can't get that.
▶ 1:04:49You can or cannot?
▶ 1:04:51Okay, very Well, then you weren't wrong. That's exactly right. You cannot buy that engine. It's not an LT3, but anyway. So, I mean, that makes that has, I think, some credibility. How would you respond to that, Ms. Absolutely, it's a it's a critically important question, and I do think that it warrants deep consideration about where the right threshold sits, and if it should move.
▶ 1:05:12I will say that also now cash transactions at $10,000 are even more anomalous today in a highly digital finance world. So, that must be accounted for and and as well as understanding what the implications are for CTRs and 8300s, the equivalent for trades and businesses, what the impacts are on revenue and tax oversight because AML doesn't sit in a vacuum. It's used by other There's other regulatory regimes that also rely upon this.
▶ 1:05:40But beyond that, I would I I I think that it does warrant engagement and thinking about inflation should not be the only consideration. Understanding the value of CTRs, the IRS-CI just published in their metrics the high value of CTRs in the course of their investigations. So, I would think about all of those together.
▶ 1:05:55does seem I mean they make the other gentleman do make a I think a pretty good argument that it it's just simply a checking of the box almost today. I mean instead of value, it's just volume. Um so, at least on law enforcement use case, like IRS-CI pointed I I think over a majority of their cases use and reference CTRs. Um sorry, I don't have those metrics in front of me, but they published their statistics and
▶ 1:06:19Would someone like to counter that? Yes, Mr. Anthony. Since I quoted you, so much. Go ahead. Well, briefly I'll say that IRS-CI says that a Bank Secrecy Act report only kicks off about 275 cases. And they say that they do use these reports in many more cases than that. However, a key thing here is if it's not kicking off the case, then it's hard to justify it in my eyes when you're thinking about the Fourth Amendment that they're supposed to do an investigation, say, "I need to see your bank record.
▶ 1:06:49Let me go to a judge, say, I did my homework, I did my due diligence. I'm going through the checks and balances on my power. Let me see it." And you get that sign-off. My My time is up. I'm going to yield back. Thank you, Mr. Chairman. Thank you, Mr. Vargas. I now recognize the chairman of our subcommittee on financial institutions, Mr. Barr of Kentucky, for 5 minutes. Thank you, Mr. Chairman. Great hearing, important hearing, and uh the our witnesses I think have made a very powerful case for to the Bank Secrecy Act framework.
▶ 1:07:19Um the banks in Kentucky have complained in particular about the redundancy of current customer information. one one piece of feedback is we have to fill out forms on existing customers they're opening an additional account, and being able to use the original information on customers should be sufficient. Mr.
▶ 1:07:45Court, do you hear this complaint and and why aren't the agencies FinCEN or the other supervisory agencies uh addressing that basic question? Yes, that reflects the sort of entrenched orthodoxy at the agencies, which is just always just more more information, more reviews is always better.
▶ 1:08:07There's no sort of natural predator against that instinct, which is why I think the incentives are Um but I I in the current administration FinCEN has acted to try to reduce the extent to to to which that's happening, and FinCEN put out FAQs I think earlier this year or late last year um instructing that you don't have to do those additional reviews every time an existing customer say gets a new credit line or gets a new credit card with the institution.
▶ 1:08:35The bank can rely on the due diligence already done. Well, thank you for that. And and obviously we do need to update these thresholds for CTRs and SARs based on inflation, and I am a co-sponsor of uh of Congressman Loudermilk's bill HR 1799, which would update these thresholds for financial reporting. Um but I but I want to get at Mr.
▶ 1:09:00Redboard's kind of more overriding point, which is that um we need a new supervisory architecture that rewards institutions that that that adopt AI and other technological tools that more effectively get at illicit activity as opposed to this uh box-checking uh exercise and compliance volume as a measurement of what how effective we're Um TRM sounds like an an amazing firm.
▶ 1:09:27Um are there uh what is the adoption rate by financial institutions uh in this country of technological tools like the ones that you offer? Thank you for the question. Um look, as we see more and more financial institutions looking to enable technology, we're working with with many or most of them today. Um certainly in the digital assets ecosystem, but even beyond to many of the banks that are uh part of Mr. Court's uh organization.
▶ 1:09:54So, I'd say more and more we're seeing um financial institutions leverage this technology. I would say from an AI perspective, and Mr. Court made this point, uh it's it's critical. When you talk to financial institutions about using AI tools, it's often, "Well, you know, I'm not sure how my regulator is going to react to that." Yeah. I think the reality is that having safe harbors, having a messaging from FinCEN, having messaging uh from Congress on the importance of using technology, cutting-edge technology to do this work is critical.
▶ 1:10:20And Mr. Court, um could you uh could we uh significantly reduce the compliance burden on institutions if we if we shifted the legal framework from just volume of s- SARs production to uh rewarding institutions that are investing in technology to look at the real risks? You absolutely can, and that's absolutely what we should be doing.
▶ 1:10:44We had one institution in our membership that reported spending $111 million in 1 year just on CTR filings. Um so, it's just a it's just a tremendous waste of resources. There should be more automation, there should be less noise, there should everything should be more risk focused.
▶ 1:10:59Yeah, what one other thing Mr. Court, I I get this feedback a lot again from constituent uh financial institutions in Kentucky that there's no feedback. They produce all of these SARs and and and I think the statistic is what only only 2% of 4 million SARs annually and estimates that law enforcement acts on only 2% of them, but then on top of that financial institutions get no feedback of whether what they're doing is actually helping combat
▶ 1:11:29illicit Uh how much feedback does FinCEN or law enforcement provide to financial institutions so that the institutions themselves can prioritize their compliance resources? Yeah, the reason a lot of smaller institutions, including some that might be in Kentucky, file all these SARs and get no feedback is because they're not filing the SAR to help law enforcement. They're filing the SAR because they don't want to be criticized by their examiner for some silly little thing that they might have missed. So, that's what they're doing with their resources. So, I'm not surprised that law enforcement doesn't follow up.
▶ 1:11:56I will say in larger institutions, law enforcement and FinCEN in the larger institutions, particularly those institutions that have these financial intelligence units, this is really sort of the avant-garde of where this should be going, where resources should be allocated. Um it's a much more um investigation exercise inside the banks and there's much more collaboration. So, so I will give law enforcement credit there. But that these wasted uh filings are um need to go away. Thank you. Yield back. Thank you, Mr. Barr. I now recognize the gentleman from Illinois, Mr. Casten for 5 minutes.
▶ 1:12:27Uh thank you, Mr. Chairman and and Mr. Redbird, I want to just start by thanking you and your firm for the the work you did on the uh I'm going to get this name wrong, the OK OKX prosecution. Um I think $255 million recovered through your help with blockchain analytics. Um so, we need you out there. Um I also want to um acknowledge my colleagues, Congressman Gottheimer and Congressman Fitzgerald, who've produced bipartisan legislation, the GUARD Act, to make sure that law enforcement has the the the blockchain tools they need to go after that.
▶ 1:12:57Um I hope just quick yes or no question, do you agree that law enforcement should have the tools to prosecute crypto-based money laundering fraud and scams? Absolutely. Um I'm glad to hear that. I say that because I have this huge concern that this administration and frankly the Republican Party totally disagrees with you. Right, there's going to be a lot of nice words here, but we can't ignore the fact that the DOJ just disbanded their crypto enforcement team.
▶ 1:13:27We can't ignore the fact that the IRS actually has um delegated enforcement authority for the Bank Secrecy Act. And the IRS has cut their staff by 25% thanks to Doge, um including a lot of those enforcement agents. We can't ignore the fact that the SEC has eliminated nearly 20% of their staff under Trump.
▶ 1:13:46CFTC's cut by the same CFTC has reportedly laid off every single enforcement attorney in their Chicago office who have previously secured billions of dollars in settlements, including on the FTX case from folks doing crypto analysis.
▶ 1:14:02And now we're sitting here with my Republican colleagues saying we should also shut down the what was the bipartisan Corporate Transparency Act, which will reduce information report regulators by 99% of the true owners of who the shell companies are who are going through and and chasing all this down. So I I appreciate your support. I appreciate all the nice words.
▶ 1:14:21I don't think my Republican colleagues are big fans of money laundering and child trafficking and drug trafficking, but they are they are firing all the Ms. House, you've you worked at FinCEN. if Congress repeals the CTA, what breaks down first in law enforcement? What are the intelligence As briefly as possible cuz I want to get to a couple of my things.
▶ 1:14:46Um, it is a huge problem for us to be able to address Chinese infiltration of our AI supply chains, going after fentanyl traffickers, um, and Chinese money laundering organizations, cartels. Like this really, uh, cuts us off at the knees on being able to address that problem. And Mr. Anthony, you talked about the Fourth Amendment. Does the Fourth Amendment give American citizens an affirmative right to hide illicit financial transactions? Yes or no? It does not give you a right to have to hide crime, but it does give a burden to law enforcement. It does it check on that crime?
▶ 1:15:16Does it preclude law enforcement from investigating the hiding illicit financial transactions? No. Okay, so when Donald Trump was arrested and convicted for falsifying financial records, he did not have an affirmative Fourth Amendment defense, correct? I'm not an expert in that case. I'm sorry. Well, he didn't claim one. Um, I'm sorry.
▶ 1:15:33that he didn't he did not claim a Fourth Amendment defense. So, we've got a convicted felon with a record of falsifying financial records, who in his first term, we know engaged with sanctioned entities to the tune of millions of dollars through real estate transactions, and his net worth has now grown by billions of dollars in his second term with crypto networks.
▶ 1:15:54Do any of you on this panel know can you even figure out whether this particular convicted felon has received money from sanctioned financial players through cryptographic I mean, it sure looks suspicious.
▶ 1:16:14If I was a law enforcement officer and I had a felon who was convicted of financial fraud and hiding financial records, hiding records from financial entities, I'd like to have eyes on that And we don't even know where they're looking. And now my Republican colleagues are saying, "You know what we should do? We should defund the police Ms.
▶ 1:16:39House, how should we modernize FinCEN's special measures and other authorities crack down on criminal And how do we make sure that if we are a country of laws, that no one is above the law, even if every one of these is bowing down and kissing the boots of the We must ensure that we are not arbitrarily handcuffed to only be able to go after pass-through accounts and and banking correspondent banking relationships.
▶ 1:16:59So, special measure six I'm sorry, special measure five should become a special measure six either under 311 or the 9714 authority uh to allow us to cover FinCEN transactions, cryptocurrency transactions, all of those basically just payment relationships, any kind of financial relationship should be able to be covered. Um you shouldn't be arbitrarily restricted based on having a correspondent banking relationship. And and look, I'm out of time and I I hate that this is partisan.
▶ 1:17:22But we cannot deny the fact that this chamber and the Senate passed rules that says if you're using a DeFi platform like World Liberty Financial, which is the source of the president's billions dollars of wealth, you cannot even be Either we care about crime, either we're going to fund the police, or we're not. Yield back. The gentleman's time has expired. I'd remind all members to not engage in personalities to the President of the United States.
▶ 1:17:48Uh and I would point out as a matter of fact uh he was spied on by our government Thus, the settlement agreement. I now recognize the gentlewoman from California, Ms. Kim, for 5 minutes. Thank you, Chairman and Ranking Member Beatty, for hosting this hearing. Thank you to our witnesses for joining us today.
▶ 1:18:06You know, early this year, I had the pleasure of having um FinCEN Director Gacki come to my district, and we had a round table conversation to uh help educate my constituents in Riverside and Orange County on the residential real estate rulemaking.
▶ 1:18:26That rulemaking would have required title insurance companies and real estate agents to collect and uh report the beneficial ownership information on certain cash transactions. I believe that is now held up in court.
▶ 1:18:41Uh I agree that, you know, we must have strong protections to prevent illicit finance transactions in real estate, but we must also ensure that our policies are crafted through economic analyses and you know, lead that to helpful information rather than collecting information just for the sake of collecting them. So, Mr.
▶ 1:19:03Court, when financial institutions transmit information to FinCEN or law enforcement, can you describe the type of feedback that they get and whether that is beneficial to those uh Well, the ideal state would be that they would get feedback. Um but that's not the state that we have.
▶ 1:19:27Um we've talked at the hearing today already about the very, very low uh uptick that any of these CTR or SAR reports generate. We've also talked about how the real impetus for many of the SAR filings that are made are not that they contain information that would be useful to law enforcement, but that they're made because the bank lives in fear of its bank examiner and the criticisms and the and the zero tolerance for any even minute error, uh which can lead to sanctions.
▶ 1:19:55Let me lead that question and then ask Mr. Anthony. Uh so, as banks seek to stay in compliance with the law, can you tell me what is the most common reason they're submitting information to FinCEN? Is it because of the evidence of terrorism or trafficking? It is not because of terrorism or human trafficking or really any other truly heinous crime.
▶ 1:20:21The most common reason that these reports are being filed is because somebody got near the $10,000 threshold for a currency transaction report, but didn't cross it. Or maybe the bank is looking at this and they're not sure where you got your money from. So, really mundane activity.
▶ 1:20:40So, when our largest banks with massive compliance teams feel like they're struggling to process that feedback from FinCEN and provide helpful I can only imagine how the small businesses in real estate market will struggle with FinCEN and law enforcement because they need to spend more time educating potential home buyers on the rule making and ensure they're providing valuable information.
▶ 1:21:08So, I hope FinCEN continues to amend that residential real estate rule making and take that into consideration and talk about the burden, right? Think about the burden that it will eventually place on those small businesses. But let me shift gears now and I want to focus on transnational repression. It is concerning to me that foreign governments could effectively debank Americans through the Bank Secrecy Act by alleging that individual is a terrorist.
▶ 1:21:38So, Mr. Anthony, again, can you talk about how governments like Russia and other bad actors weaponize that loophole to hurt human rights defenders? Absolutely. We're seeing it growing more and more each year with bad actors like Russia, Nicaragua, China, and elsewhere all coming in saying they recognize that the US exported the Bank Secrecy Act to the rest of the world, got them all on the standard, and then they can use it
▶ 1:22:08for their means. When they have their opponents or dissidents flee to other countries in exile where the US is supposed to be a safe haven for them, they're able to reach across their borders and use the financial system to target them. And we've seen that, like I said in my testimony, most recently with the Anti-Corruption Foundation.
▶ 1:22:28And this should be something really seriously concerning for us because effectively the US has handed this tool to authoritarians on a silver Even if like in an organization one or two or even more organizations are debanked because of that loophole, it is concerning and we need to address it. Lastly, I want to touch on the role that artificial intelligence is playing in enhancing our efforts to prevent illicit so Mr.
▶ 1:22:57Redbord, can you talk about the role the data transmission play in Bank Secrecy Act modernization for AI effectiveness very briefly.
▶ 1:23:06the gentleman to respond in writing. The gentlelady's time has expired. I now recognize the ranking member of the Committee on Financial Institutions, Dr. Foster of Illinois for 5 minutes. Yeah, and I'd like to actually speak about agentic finance which is you know by most accounts going to take over finance. A lot of people feel that you know the majority of financial transactions within a few years will happen not between people or businesses but between their AI agents.
▶ 1:23:35And when my AI agent starts talking to your agent, the very first question they have to ask is who the heck are you and prove it and how do I know you've been authorized to do that transaction? All right, now it seems to me that that really will only work if you have two things.
▶ 1:23:51First, you have secure digital ID means that basically when you authorize a transaction sometime near there you go and smile at your cell phone do the biometric login and present a legally traceable for example a real ID driver's license in the United States or in you know any of the other free democracies of the world now are all moving toward a standard developed in the United States by National Institutes of Standards and Technologies back in the Obama administration for these digital identity documents that that allow a person [clears throat]
▶ 1:24:22to prove that they are a single legally traceable citizen of that country. And so it seems to me that's an essential component that will be present I think pretty much by the end of this year in the EU and in other countries around the world. And we're going to lag behind. And so that that's one component and I was just wondering if any of you have any any questions about whether that has to be the area that you know, whether that the United States should be going that way. We'll start with Miss House. Absolutely. Um and Dr.
▶ 1:24:52Foster first I'll I'll thank you for your leadership that you've done in engaging on digital identity. I think that you can't get agentic commerce right without getting identity of people, of businesses, of devices and data right. Um so I think that this is going to be a catalyst to drive a lot of investment there. And we need it to ensure security, privacy. There's a lot of opportunities for technology to answer these policy questions and calibrations to get right.
▶ 1:25:14The government must focus on where it should be facilitating R&D, providing those kinds of privacy-preserving attribute validation services for high-risk applications. All of these are critical to get agentic commerce right in a trustworthy way. Yeah, and the United States is falling behind the rest of the world and that they are all deploying our standards and we are we are not. It's only it's less than half of the states.
▶ 1:25:36And I actually have a Republican Pete Sessions and I have a bill to try to you know, get some money to states to get these Real ID compliant driver's licenses widely deployed cuz they are the only tool that's really at hand in the US to prevent you know, waves of fraud of identity fraud, AI-driven identity fraud, as well as fraud against the taxpayer of which there was hundreds of billions of dollars during COVID and happens every year. Yeah, Mr. Anthony.
▶ 1:26:02So one thing I just want to bring to your attention that deeply concerns me though about the digital ID is if we think about it as a digital license plate to track you along the internet, I worry about how physical license plates have been increasingly abused by particularly police officers in domestic violence cases where flock systems have been used to track their exes and luckily many of them have been caught but still many of them are out there every
▶ 1:26:32day abusing this really mundane technology. I mean it doesn't get much more analog than a physical license plate and so what I want to know is what safeguards would be in place to stop that type of abuse?
▶ 1:26:48Yeah and and in for example in in Scandinavia you have a right to know every time every every federal worker accesses your data and which is completely feasible in the United States. Uh if they're you know if they're you know you get a little email or an account you can log into which you log into by proving you are who you say you are using your digital ID and then say okay I want a list of every time that my data has been accessed by the government. That would be welcome across the board.
▶ 1:27:16Yeah and so I think that is really that's the future that is existing in other countries and really should exist here as well. Any other comments on digital ID? Okay. Yes Congressman and I I hope that your legislation with Congressman Sessions passes. I think I think it's critical. There are standards associated with like with NIST's digital identity standards that can help put in place these privacy preserving tools to prevent things like phoning home so we can achieve this in a dignity and privacy preserving way.
▶ 1:27:42We even put in place some of those measures to try to improve federal benefit program integrity in President Biden's last cyber executive order. Unfortunately those were all rescinded in full which I'm I'm still saddened by. I hope that they'll be reconstituted to combat fraud in federal benefits programs. Thank you.
▶ 1:27:57I have only a few seconds left but also point out that when our agents start talking to each other the first question is who are you and then the and if the answer that is I am an anonymous shell corporation you're out of business and we're falling behind the rest of the world and if all of the US agents or any of the US agents start just saying I'm sorry we have an anonymous shell corporation shielding the true beneficial owner of this agent, we're not going to be competitive and the rest of the world is ahead of us on there and we have to catch up. Yield Thank you, Mr. Foster.
▶ 1:28:27I now recognize the chairman of the full committee, Mr. Hill from Arkansas for 5 minutes. Thank you, Chairman Davidson. It's great to have this very informed, smart panel with us today to help us sort through reforms to our AML regime.
▶ 1:28:43Of course, this is this regime is as old as Joe Biden's public service in 1970, 1972 and uh here we are on the 25th anniversary of 9/11 coming up in September and something we're working on in our intelligence committee is a report on assessing how intelligence has changed uh since 9/11 and did it even comply with the 9/11 9/11 Commission report?
▶ 1:29:10The short answer is no, we are not in compliance with the But all these things mean that technology is such a fundamental component and using it for compliance and using it for smart uh work, I think is so key and I would argue that the current Bank Secrecy Act regime for banks is not taking advantage, you know, of the fact that we have technology and we have a lot of new tools. So, I want to start, Mr.
▶ 1:29:38Court, with Can you put in the record today just a scale of the compliance burden that uh the Bank Secrecy Act puts on a bank and if you would, and you can submit it for the record, too.
▶ 1:29:56I'm asking questions like, well, what is the share of compliance with BSA, which includes KYC and obviously anti-money laundering rules in the bank, as a percentage of the total compliance budget of a typical bank or a staff levels as a percentage of the staff at the bank or expense this kind of compliance expense as a percentage of assets.
▶ 1:30:21I mean I ran a small entrepreneurial privately held bank and you know, it was a big chunk because we have it at some level you have no choice but to do this and you don't have JP Morgan's budget. So can you give us some shine some light just on the the cost burden of this and I'm not equating that costs are bad. It's not about not complying. It's not about not catching bad people doing illicit structuring.
▶ 1:30:48But it's about you know, are we really taking advantage of the tools? What what what do you have to say on that? It's a great question. I don't have the exact quantitative average. I could we could look into that. We do surveys of our members all the time. We'd be happy to do that. We did do a overall compliance burden survey recently and found that north of 40% of senior management and board time more than 15% of the IT budget of these institutions is all devoted to regulatory compliance.
▶ 1:31:17I will tell you though it's extraordinary for the AML, right? And it's not just extraordinary in the sense of the relative amount of compliance resources that AML choose up. It's where those resources are deployed, right? And they're currently deployed in the most anachronistic wasteful way as a general manner.
▶ 1:31:35And that is a function of the bank examination framework where examiners come in in the cloak of secrecy with no transparency, have private conversations with bankers, have private conversations with AML staff and for all of these examiners, um you know, the most minor non-compliance technical non-compliance generates the most volume of work, right?
▶ 1:31:58And so we have these institutions who who are deploying financial crime fighting resources and instead of devoting them to like high risk activities where they can be effective, they end up devoting them to low risk activities where all they're doing is trying to make it their examiner happy. Well, I always put this in the record every one of these hearings. We've had a lot of hearings on this subject in the decade I've served in Congress. And I literally had an examiner say to me one time, "Boy, you got a real problem with AML BSA compliance." Really? God, what what's up?
▶ 1:32:26He goes, "Well, banks your size across the country I'm my bank is in Little Rock, Arkansas. Across the country, they file an average of 10 SARs a month." I said, "Well, maybe I don't do business with criminals." Why are you imposing on me a standard that's not a legal standard? I'm complying with the law by reporting suspicious activity as I see it.
▶ 1:32:55And they're holding me to an invisible standard that's ridiculous. And it just seems like it forces banks to generate a bunch of enormous false positives. Oh, yeah, we collected this stuff, but you know, of what value is it? So, let me turn to you, Mr. Redboard, and thank you for TRM's extraordinary services to the American people in tracking and mapping illicit finance networks. We appreciate that.
▶ 1:33:21But can't AI bring some solution to these common It is the solution and we definitely go into I know you only have a couple seconds. We go into depth in our written statement, but it's a combination of things. Every federal agency should be using these tools today to go after bad actors who are using them at scale. And every financial institution should have this as part of their compliance playbook, right? Running AI over these enormous data sets to find the signal in the noise. Thank you, sir.
▶ 1:33:47I'll look forward to studying your testimony in detail. I really appreciate this panel. I'll yield back to the chairman. Thank you, Chairman. I now recognize the ranking member of the full committee, Ms. Waters of California, for 5 minutes. Uh thank you very much. Um Mr.
▶ 1:34:07Court, on Tuesday, the Trump administration issued issued an executive order mandating future administrative action related to the citizenship of financial institution customers, including those of the Bank Policy Institutes member institutions.
▶ 1:34:28As the White House openly admitted on Twitter, uh that the executive order is intended to, quote, "Restore integrity to our financial system by kicking out illegals. Expect more self-deportations to follow." Quote, unquote. This is just the latest assault on non-citizen customers of financial institutions, including other actions at the southern border and in Minnesota.
▶ 1:34:57I believe that BPI and other banking associations have expressed concerns that are potentially harmful effects of forcing banks to more deeply scrutinize, verify, and report foreigners' citizenship status.
▶ 1:35:13In just a few words, is it correct that banks have warned that depending on how this is implemented, there is a possibility that immigrants, documented or otherwise, will experience de-risking or discrimination? Certainly, the White House seems to think so. We're still studying that executive order. I appreciate the question, but I I don't think we know.
▶ 1:35:38It's It's a direction to um various agencies inside the government to take action, and I think we wouldn't know more information until we see what that action is going to be. Well, uh Ms. House, all of this has been done in the name of fraud and trafficking. Which is certainly serious concerns. Yet we know from the excellent research by Mr.
▶ 1:36:00Anthony's organization, the Cato Institute, that immigrants are not the ones committing the vast majority of benefits fraud or smuggling drugs across the southern border. Can you comment on the efficacy of this executive order on the purported bad actors that he claims to target?
▶ 1:36:21Yes, it Congresswoman it's it's an incisive point because this this doesn't feel certainly not the way that I would try to go after fraud and like the kind of priorities that we need to be that we need to be elevating for fraud. Legal status is a tough issue and so especially given that we're reducing burden everywhere else. Like this is a very legal status is a very dynamic attribute. So that's tough to implement on burden.
▶ 1:36:44The the pig butchering and other transnational fraud groups are a trillion dollar shadow war that are depriving Americans of their life savings and that's not what we're focusing on dismantling. We are dismantling the enforcement apparatus in deeply concerning ways that have been discussed by by many members so far. And then this administration rescinded all of President Biden's measures on combating fraud in federal benefits programs that we had placed in the cybersecurity executive order.
▶ 1:37:11So I'm I'm concerned about how this measure I don't see how it addresses what these other policy efforts and enforcement apparatuses could have been doing and should be doing to try to help us prioritize fraud. I'm curious. Are all convicted criminals treated in a certain way in banking where they're scrutinized if they've been charged with and prosecuted for certain I don't think it's not a one-size-fits-all.
▶ 1:37:40Most of that is a risk-based approach. There there can be enhanced due diligence based on people's like as banks consider what um what certain profiles that they're willing to accept. But, you're right that this would seem to to set um a common bar for um for everyone based on certain legal status. Um but, I I agree that there's still a lot to be done on studying the effects of this EO since it was just issued. No, no, no. Oh, uh I guess this is come under the heading of a politically exposed person.
▶ 1:38:10Um I suppose my time is going to run out before I have time to continue to explore this. Uh but, I certainly will take every opportunity to do it in the future. Thank you. Thank you, Ms. Waters. I now recognize the gentleman from California, Mr. Luccardo, for 5 minutes. Uh thank you, Mr. Chair. Uh Mr.
▶ 1:38:30Court, I know you're an executive with the Bank Policy Institute uh and appreciate the insights um that you've been able to offer and your and your team uh about the industry.
▶ 1:38:43Um After this hearing was announced and just a few days ago, uh we saw a Trump executive order issued May 19th of 2026 about restoring integrity to America's financial system. You've had a chance to see that, I And I I think, you know, as we've been all been discussing, there's certainly a consensus on the need to modernize the Bank Secrecy Act.
▶ 1:39:13In some ways, it's perhaps overly burdensome on banks uh and financial institutions. In other ways, we know we could be targeting criminals more effectively uh than we are. what this executive order, I think you'll recall, uh requires it directs the Treasury Secretary to issue an advisory to banks to identify red flags uh for various dimensions of fraud and uh concealment of true
▶ 1:39:43account ownership. Do you recall that? And specifically, I'm quoting from it uh refers to ensuring that banks will identify the following categories of suspicious activity, the utilization of nominee accounts, shell companies, or complex funnel structures designed to obfuscate the identity of the ultimate beneficial owners.
▶ 1:40:09Uh that responsibility in some ways place some burden on banks to identify with red flags when this activity is happening. Is that Is that fair? Yes, although I would note that banks currently have an obligation to know their customers and yes, to conduct a customer due diligence and to conduct when where necessary enhanced customer due diligence. And those obligations extend as far as you reasonably can know those customers where they identify themselves truthfully and accurately.
▶ 1:40:40Fair to say? Okay. So, back in 2020, uh in a bipartisan way, Congress came together as part of a larger package of reform uh and passed the Corporate Transparency Act of 2020 to promote transparency of true ownership or control of companies. Uh and I know BPI in fact advocated for the passage of that. Well, is that right?
▶ 1:41:08We were supportive of the legislation, the AML legislation, yes. Yes, and and that would help obviously banks do their jobs of identifying fraudulent activity where you could actually understand who the true owners of a corporation or a company are based on their actual control or their ownership interest. Is that fair? Yes, although to be fair, banks have been required to do that prior to the AMLA. The AMLA merely set up the Corporate Transparency act in the registry.
▶ 1:41:38That was That was the new thing. Yeah. And I understand BPI was actually interested as others in the industry were that this registry that was would be helpful because we'd have a centralized database that would essentially take some burden off of you from having to play detective to understand who's really behind shell companies that may be moving money for illicit purposes. Is that fair?
▶ 1:42:07Yeah, if you want to talk about just like in a purest sort of mathematical way, what's the most the simplest way to do something, you sometimes come down to like doing it one time instead of multiple times. I think that was the theory. But again, I would stress that banks have been required to do beneficial ownership for for some time. You know, I I would say on the the registry, I mean, you know, in a mathematical sense, people would say it makes sense cuz it it means fewer resources invested to accomplish something. But on the other hand, there there clearly are other concerns on the other side, right?
▶ 1:42:35Privacy, data security, the role of the government. Yes, particularly given some of the activities of individuals in the government. I I certainly know there are concerns on the other side. The question is whether they're legitimate. Um in fact, the Trump administration has indicated it won't enforce any penalties uh or fines for non-compliance with the uh particularly as it applies to US citizens and companies.
▶ 1:42:57And now this company or I'm sorry, this committee in fact has marked up and approved HR 425 uh on a party line vote to essentially exempt US persons, companies from compliance. So there will be no database, unlike 170 other industrialized nations in this world. We will be the only one without any database. And now it'll all be on banks.
▶ 1:43:25Uh how do you think your members feel about that responsibility? I think encourage uh Mr. Court to respond for the question and to the question uh for written writing for the record. Uh all time for member questions is 5
▶ 1:43:42note that the the chair actually interrupted when I had several seconds still on the clock. gentleman's time has expired. It's expired now after you interrupted, but not before. I spoke when the clock was at zero, Mr. Ricard. I think the record
▶ 1:43:58like to thank and it was obviously going to take more than a second to respond to it. So, I'd like to thank all witnesses for their testimony today. Without objection, all members will have five legislative days to submit additional written questions to witnesses uh for the record. Uh the questions will be forwarded to witnesses for their response. Uh the witnesses will please respond no later than June 25th of 2026. Uh and this hearing is now